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For all of those reasons, it’s important to know if you are a mere signatory on an account without a beneficial interest in it. That could mean you have FBAR filing obligations but that you don’t have income when the account earns interest. That could mean, for example, that you might need to file some back FBARs and disclose the account to the IRS, but might not need to go into the IRS voluntary disclosure program (since you don’t owe any tax). See Is Closing Foreign Bank Accounts An Alternative To Disclosure?

How do you know if you meet this fact pattern or how these accounts are evaluated? If A and B have a joint interest-earning bank account producing $100 of income, who pays tax on it? Perhaps it only seems fair for each person to have $50 of income, but it is often not that simple.

If A’s Social Security number is linked to the account, won’t A receive a Form 1099-INT from the bank for all the interest? If so, A may feel forced to pay all the tax. Yet some taxpayers finesse the situation by reflecting the Form 1099 on their return but showing a deduction for the interest paid to their co-account holder.

With foreign accounts the stakes are particularly high. With a foreign bank, there will be no IRS Form 1099 to alert the holders about the income and its reporting. Moreover, nettlesome questions about FBARs and tax return reporting are likely to arise. If you are a signatory, you should file an FBAR.

But do you also have income from the account that must be reported to the IRS? You may have a formal or informal power of attorney or other signature authority without beneficial ownership. With informal family dealings, each person may not be certain what he has.

Often, who owns the account under prevailing local law should control. But the IRS and the courts will generally evaluate the facts and the conduct of the parties and look for beneficial ownership. That means the local law owner may be different from the beneficial owner.

The facts and documents are important. Whatever you do, be careful and get some advice about your situation.

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